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The world is watching two conferences in China: The National Committee of the Chinese People's Political Consultative Conference (CPPCC) and the session of the National People's Congress (NPC). Chinese people pay attention to the sessions because new policies are normally disclosed and the outlook of the world's second largest economy is provided during the two sessions. In these days, the world economy is so dependent on the Chinese economy that any sign of recovery from China will likely be seen as a turning point of the recession.

In the second day of meeting, the Shanghai stock index shot up by 6.3% on the news that the stimulus package is working as planned. Members of the congress said to the media that 8% GDP growth in 2009 is no problem and they are aiming for a higher number instead. To achieve higher GDP growth, Premier Wen is going to announce a new plan to add to existing YUAN$4T stimulus package, including more stimulus into the top ten industries: iron ore and steel, automobiles, ships, petrochemicals, textile, light industry, non-ferrous metals, equipment manufacturing, and electronic information. This is seen as a big boost to export sectors of western countries. The most important message investors want to hear is that China is strongly against trade protectionism, which means the world can share the massive stimulus package of China, and this changed the sentiment of world stock market overnight.

China's ambitious stimulus package will not only boost 2009 GDP over 8%, but it also includes its global strategic acquisition in various industries. In Feb. 2009, Chinalco of China invested US$19.5 billion in Rio Tinto (RTP) to acquire 20% in Rio Tinto plc and 14.9% in Rio Tinto Limited, equivalent to an 18.0% interest in the Rio Tinto Group. The China is awarded a guaranteed supply of aluminum and copper from Rio Tinto by this strategic joint venture. This sends a signal to the world that metal demand in China is growing, and at this point China is having tremendous opportunity to secure future supply for the next decade.

With the aggressive move from central government, more acquisitions are coming. In recent news from official Xinhua news net, a massive high speed railway project was announced in eastern China with a speed of 400KM per hour, this a half the speed of a jet. The Ministry of Railways, the governments of Shanghai and Zhejiang and Bao Steel Group will finance the project, which will cost about 4.37 billion U.S. dollars. Including the current high speed railway project from Beijing to Shanghai, the total length of rail will reach 1500KM. The demand of steel products will skyrocket due to the demand, and Bao Steel and the steel industry will be the beneficiaries. There is speculation among local investors that Bao Steel is seeking to acquire iron ore and steel producer overseas with support from central government after taking over local rival Ningbo Iron & Steel Co., Ltd.. Candidates include US companies Cliffs Natural Resources (NYSE:CLF) and US Steel (NYSE:X), and Arcelor Mittal (NYSE:MT) of Luxembourg. Even an offer price of 100%-150% premium on either one would be a steal for Bao Steel and the Chinese government (read more here and here).

Signs of global economic recovery are under way. This can be seen in commodity prices: Copper price up 35% from December low; oil up 45% from bottom; Rio Tinto as the bellwether in China metal market due its tie with Chinalco Inc predicted on Wednesday that Growth in China, will “pick up” in the second half (Bloomberg News).

Stock position: None.

Source: Chinese Congress: 8% GDP, No Problem